Caring and Feeding of Cash Flow

If you look back at any of this blog's entries, you'll see we talk about the importance of keeping your business' cash flow balanced. A quick review of cash flow—it's the cash your company actually has available (not the cash you're waiting on from clients) to pay expenses, salaries, rent, equipment, and payables.

Three key things about having cash:

• Your company can't stay in business without enough cash.
• Your company can't grow without cash.
• Your company can't compete without cash.

The activities can interfere with cash flow:

• Slow sales.
• Slow payments (accounts receivables).
• Not charging enough for products and services.
• Charging too much for products and services.
• Not getting loans or credit.
• Unexpected expenses: broken equipment, replacing building appliances (air conditioner, for example), and late payment penalties.

So how do you manage your cash flow without sweating bullets? Do some or all of these will go a long way in keeping your pocketbook and business happy:

1. Keep your financial records updated and accurate: it may call for hiring an accountant or bookkeeper (see *** note below). Remember they can work on an outsourcing basis instead of full-time. Of course, stay on top of your financials yourself to ensure everything is accurate.
2. Put money away for surprises: Not the good kind of surprises, I'm afraid. The people of Galveston recently lost their homes and businesses due to Hurricane Ike. What if your business was one of them? Not in a hurricane or tornado zone? There's fires, floods (don't have to be near body of water), and terrorism. Have a crisis management plan in place to prepare for this sort of thing.
3. Set fair prices: Finding the right price is hard. But with practice, research, and experience, you'll get it right or very close.
4. Manage accounts receivables: Do you have a statement in your contract that if a client is late with payment, then it will lead to a penalty? You could also reward fast payment with a discount. You can sell your accounts receivables and let it become another organization's problem and get the cash sooner albeit less than the original value.
5. Take out loans or line of credit: Banks aren't the only place to ask for a loan. Many financial organizations exist to help businesses with loans faster than a bank and with lower rates than a bank can offer. Service-based companies also struggle to provide collateral that many financial institutions require for a loan. Businesses like ours look at more beyond collaterals as we know success can be based on many other factors.

Watch both sides of the cash flow—the things that take it from you and the things that help—and your business cash flow will flow smoothly.

*** The difference between accounting and bookkeeping from HowStuffWorks: "On to the terminology: We have already said the words "accounting" and "bookkeeping." Accounting is the big picture, the system that keeps track of data (including people), records your transaction history, gives you reports—those all-important pictures of your company. Accounting also encompasses payroll, an area of particular concern since huge fines can accompany small mistakes. Of equal weight is the tax status of your company. Accounting is the system that will provide the reports and information you need.

"Bookkeeping is the tedious part—the systematic recording of amounts, dates, and sources of every revenue and expense you generate. Think of accounting as a giant sifter and of bookkeeping as the process of pouring stuff into it. Things get stirred around and you get the information you need to run your business."